BAKU, Azerbaijan, Dec. 16
By Fakhri Vakilov-Trend:
Standard and Poors’ (S&P) Global Ratings affirmed its 'BB-' long-term and 'B' short-term foreign and local currency sovereign credit ratings on Uzbekistan, the outlook is stable, Trend reports citing S&P.
The government has commenced banking sector reforms to improve the commercial viability of domestic banks. These reforms should decrease dollarization in the banking system, which should improve monetary policy effectiveness over time.
“We expect the authorities will continue institutional and economic reforms, which should ultimately strengthen governance and expand the economy's productive capacity. We are affirming our 'BB-/B' ratings on Uzbekistan and keeping the outlook at stable,” S&P reported.
The stable outlook reflects S&P’s expectation that, over the next year, Uzbekistan's fiscal and external positions will remain strong but decline slightly, because of current account deficits and government borrowing.
“Although unlikely over the next year, we could raise the ratings if Uzbekistan's increased integration with the global economy and government reforms of state-owned enterprises (SOEs) result in increased growth potential and resiliency for the economy. Further diversification of the government's revenue base or the composition of exports would also be supportive of the ratings,” read the message.
S&P’s ratings on Uzbekistan are supported by the economy's external creditor position and the government's low debt burden. These strengths predominately arise from the government's asset position, which stems from the policy of transferring some revenue from commodity sales to the Uzbekistan Fund for Reconstruction and Development (UFRD).
S&P could lower the ratings over the next year if Uzbekistan's integration with the global economy were to result in a significant deterioration in the fiscal and external balance sheets. This could happen if imports remain elevated and current account deficits continue to be funded by debt-creating flows and asset drawdowns.
S&P could also lower the ratings in case of increasing weakness in key SOEs, leading to growing contingent liabilities for the government.
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